Karen Watkin, portfolio manager of the All Market Income portfolio at AllianceBernstein discusses discusses finding attractive income without sacrificing resilience, the investment opportunities emerging from market volatility,and the long-term themes reshaping multi-asset investing.
The Monday Manager series covers fund managers that have worked on their fund for over three years, and where fund assets are over £100m.
Can you explain the portfolio’s approach to investment and what it is trying to achieve for investors?
The All Market Income Portfolio is designed to provide attractive, sustainable levels of income alongside capital growth while offering resilience across a range of market environments.
We achieve this through a broadly diversified approach across equities, fixed income and alternative strategies, underpinned by our core investment beliefs:
- Seek efficient income rather than simply the highest yield: Chasing the highest-yielding assets can expose investors to unnecessary downside risk. Instead, we focus on sources of income that offer attractive risk-adjusted returns.
- Diversify your sources of defence: Government bonds remain an important source of portfolio defence, but they are no longer the only one. We combine high-quality fixed income with lower-volatility equities and other less correlated strategies to improve portfolio resilience.
- Maintain a growth engine: High-quality growth companies may offer lower dividend yields today, but they can be an important source of long-term capital appreciation and help support future income generation.
- Broaden the opportunity set: Alongside traditional equities and bonds, we use alternative income sources—including option-writing strategies and real assets—to diversify both income and return drivers
Together, these principles form a disciplined investment framework that aims to deliver a more balanced and sustainable income experience, without relying on any single asset class or economic outcome.
Which asset classes are you most excited about and which areas are you avoiding?
In today’s environment, we continue to favour areas that combine long-term growth potential with portfolio resilience.
We remain overweight equities, with a preference for the US. Strong corporate profitability, continued AI investment and resilient earnings growth continue to support the US market. We also see selective opportunities in Japan and parts of emerging markets that are benefiting from the broader AI value chain and improving earnings trends.
At the same time, resilience is becoming increasingly important. Rather than relying solely on government bonds for defence, we favour a broader toolkit that includes option-based strategies, lower-volatility equities and selective exposure to gold.
Within fixed income, we have less duration in our portfolios versus history and remain cautious on the longer end of the yield curve in particular. Persistent inflation and fiscal uncertainty may keep yields higher for longer, although we think markets may be overly hawkish in certain places like the UK.
Instead, today’s higher starting yields create attractive opportunities in higher-quality areas of credit where investors can earn compelling income without taking excessive duration risk.
How are you navigating investing for income in a world with so much interest rate uncertainty?
Higher interest rates have undoubtedly improved the opportunity set for income investors, but uncertainty around inflation and monetary policy means portfolios need to be selective rather than simply reaching for yield.
Within fixed income we’ve moved up in quality, where today’s yields remain attractive without requiring excessive credit risk. Even though credit spreads are tight, all-in yields remain compelling, with higher-quality credit in some cases offering yields comparable to what high yield provided only a few years ago. At the same time, rate volatility argues for flexibility, and as previously mentioned, we are currently running a modest underweight to duration overall.
As multi-asset income investors, we can also diversify income beyond traditional bond markets. Equities with resilient cashflows and the ability to grow dividends can provide a degree of inflation sensitivity, while option-writing strategies can generate premium income that is less dependent on the direction of bond yields.
The aim is to build a portfolio with multiple income engines, rather than relying too heavily on any single asset class or rate outcome – this is how we can effectively look to navigate interest rate uncertainty.
How positive are you in terms of finding new investment ideas for the portfolio, compared to previous years?
I’m actually encouraged by today’s opportunity set. Macro uncertainty remains elevated, and markets have experienced periods of volatility, but those conditions often create dislocations – and dislocations can create opportunities for active managers.
AI remains a powerful long-term theme and continues to dominate index-level performance. But beneath the surface, dispersion is rising: the market is increasingly distinguishing between companies that can translate AI into revenues, earnings and productivity gains, and those where expectations may have moved ahead of fundamentals.
That is the type of environment where active security selection can add value across both equities and credit. So while volatility creates headlines, it also creates opportunity.
The key is to be disciplined, selective and flexible across asset classes, rather than relying on any single market theme to drive returns.
What are some of the key themes affecting multi-asset managers over the long term, and how are you positioned for these?
We think there are three structural trends reshaping multi-asset investing.
1. Higher stock-bond correlations
Government bonds remain an important diversifier, but they may not always provide the protection they once did during inflationary shocks. While stock-bond correlations have begun to normalise, they remain elevated relative to the pre-Covid period.
Duration continues to play an important role, but it should not be the portfolio’s only source of defence. We increasingly complement traditional fixed income with lower-volatility equities, option strategies and other diversifiers.
2. Higher and more volatile inflation
We believe inflation is likely to remain structurally higher and more volatile than investors became accustomed to over the previous decade.
While equities remain one of the best long-term real assets, real assets, commodities, gold and option strategies can all help build more resilient portfolios when inflation or volatility rises.
3. More concentrated markets
We continue to believe the AI theme has much further to run, but narrow leadership creates concentration risk. Active management and systematic equity approaches can help investors maintain exposure to long-term growth while avoiding unintended portfolio biases.
What is the best piece of investment advice you have been given?
One idea that has stayed with me comes from Annie Duke, the former professional poker player, cognitive psychology author, and decision-making expert: “Good decisions don’t always lead to good outcomes, and bad decisions don’t always lead to bad outcomes.”
Investing is ultimately a matter of probabilities rather than certainties. The objective isn’t to be right all the time, but to make consistently high-quality decisions, remain open to changing your mind as new evidence emerges, and build portfolios that are resilient across a range of possible outcomes rather than relying on a single forecast.
Ultimately, successful investing isn’t about always being right — it’s about consistently making better decisions.
